Correlation Between Datang HuaYin and Hubei Geoway

Can any of the company-specific risk be diversified away by investing in both Datang HuaYin and Hubei Geoway at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Datang HuaYin and Hubei Geoway into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Datang HuaYin Electric and Hubei Geoway Investment, you can compare the effects of market volatilities on Datang HuaYin and Hubei Geoway and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Datang HuaYin with a short position of Hubei Geoway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Datang HuaYin and Hubei Geoway.

Diversification Opportunities for Datang HuaYin and Hubei Geoway

-0.13

Correlation Coefficient

Datang HuaYin  Hubei Geoway

Good diversification

The 3 months correlation between Datang and Hubei is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Datang HuaYin Electric and Hubei Geoway Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubei Geoway Investment and Datang HuaYin is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Datang HuaYin Electric are associated (or correlated) with Hubei Geoway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubei Geoway Investment has no effect on the direction of Datang HuaYin i.e., Datang HuaYin and Hubei Geoway go up and down completely randomly.

Pair Corralation between Datang HuaYin and Hubei Geoway

Assuming the 90 days trading horizon Datang HuaYin is expected to generate 5.47 times less return on investment than Hubei Geoway. But when comparing it to its historical volatility, Datang HuaYin Electric is 2.17 times less risky than Hubei Geoway. It trades about 0.01 of its potential returns per unit of risk. Hubei Geoway Investment is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  144.00  in Hubei Geoway Investment on December 30, 2024 and sell it today you would earn a total of  3.00  from holding Hubei Geoway Investment or generate 2.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Datang HuaYin Electric  vs.  Hubei Geoway Investment

Datang HuaYin Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Datang HuaYin Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Datang HuaYin is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hubei Geoway Investment

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hubei Geoway Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Hubei Geoway is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Datang HuaYin and Hubei Geoway

The main advantage of trading using opposite Datang HuaYin and Hubei Geoway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Datang HuaYin position performs unexpectedly, Hubei Geoway can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Hubei Geoway will offset losses from the drop in Hubei Geoway's long position.

The idea behind Datang HuaYin Electric and Hubei Geoway Investment pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.